After the rest of the world appeared to turn its back on the dollar, the U.S. currency found one unexpected friend: the commodities market.
Panic selling in oil, copper and silver led to the dollar's best day since October against major currencies on Thursday as investors fled to familiar safe havens.
The biggest commodities correction in more than two years is the best, perhaps only, thing going for the dollar, which has been on a five-month slide as investors shunned it for higher returns in commodities and other currencies.
There are, of course, plenty of reasons to doubt the commodities rout will continue. The dollar's own weak fundamentals of rock-bottom interest rates and a burgeoning national debt are two of the most obvious.
Still, the longer investors are willing to contemplate the notion that the dramatic run-up in commodities was yet another financial market bubble, the better the dollar will do.
"I think this has a ways to go. I do not think investors will decide tomorrow that this is all just a scare," said Steven Englander, head of G10 FX strategy at Citigroup in New York.
"The strong belief priced into markets that growth and asset markets would be resilient to higher energy prices is being shaken."
A longer commodities retreat could also create a virtuous cycle for the dollar by undermining the case for further interest rate rises in the euro zone, expectations of which have been a huge positive for the euro currency.
The dollar's rebound initially got under way after after European Central Bank President Jean-Claude Trichet signaled that euro zone interest rates are unlikely to rise next month, wrong-footing investors who had bet on a more hawkish tone.
Growing worries about a temporary growth pullback, if translated into lower commodity prices, could benefit the dollar as it will "take some of the pressure off those central banks who have already begun the rate tightening phase," said Anthony King, managing director of investment grade fixed income at PineBridge Investments in London.
PineBridge manages about $81 billion in assets.
High energy prices have stoked inflation in Europe and other economies and prompted the ECB to hike rates in April for the first time since 2008. That helped boost the euro, which is up 9 percent against the dollar this year.
"Some of the foreign central banks, led by the ECB, have been more hawkish than they needed to be," King said.
The wide gap in interest rates has helped yield-chasing investors drive the dollar down nearly 8 percent this year before today's recovery, by borrowing cheaply in the U.S. currency to fund risk taking elsewhere.
This came apart with a vengeance as oil collapsed into free-fall on Thursday, diving 10 percent and sending U.S. crude back under $100 a barrel as investors stampeded for the exits.
Concerns that the economic environment for dollar-funded risk taking was deteriorating were exacerbated by U.S. data showing a jump in the number of Americans filing for jobless aid to an eight-month high.
Ugo Lancioni, currency strategist and portfolio manager at Neuberger Berman in London, said the latest string of soft data was released at a time where "the market is very much positioned in favor of long risk." That makes the market vulnerable to a reversal, which would benefit the dollar.
Lancioni helps oversee about $80 billion in investment-grade fixed-income assets. His firm manages about $200 billion in assets.
While a moderate pullback in the somewhat bubbly commodity market is likely in the coming months, many analysts say the long-term bull cycle on strong demand remains in place and that a burst of the bubble similar to what happened in the housing market seems unlikely.
"We would give that event a very low probability. We would be using a retreat in commodities and commodity-based currencies to buy at lower levels, "PineBridge's King said.
Vasileios Gkionakis, director of macro strategy at Fulcrum Asset Management LLP in London, which oversees $1.4 billion in assets, said it is quite possible to see commodity prices falling as a result of a stronger dollar, but it is difficult to see why the U.S. dollar would go up as a result of collapses in commodity prices.
"The fundamentals remain largely in place for U.S. dollar weakness. The Fed does not seem particularly worried by a weak currency, emerging market central banks, alongside the ECB, are raising rates and the trade data in the U.S. do not argue for a stronger currency," he said.
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